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To: Pam who wrote (36063)	4/16/2007 10:51:51 AM
From: Pam	Read Replies (1) \| Respond to of 60323

The bigger the better Monday, 16 April 2007 Last week Toshiba pumped out some impressive figures regarding capital expenditure plans and fab capacity increases. Over the next three years, Toshiba will spend approximately US$8.5 billion on its semiconductor division. The majority of this spending is expected to assist the ramp of Fab 3 to 150,000wspm and enable Fab 4, its latest 300mm fab, to reach 210,000wspm. Interestingly, both fabs' capacity levels had not been officially revealed before! We had recently highlighted that Fab 4 would be the biggest fab in the world with an estimated capacity in excess of 150,000wspm; however, with figures now at 210,000wspm, that fab just got bigger! Of course the other thing that must be noted is that these two fabs are NAND flash-dedicated and capacity is shared with manufacturing partner SanDisk. With Samsung spending approximately US$6 billion on memory capacity additions both for NAND and DRAM, Hynix wanting to spend US$3 billion doing the same and IM Flash using $4 billion to build a strong stake in the NAND market, the additional amount from Toshiba makes for some heady accounting! But that's not all! SMIC will have a 300mm fab ramping later this year that will be memory-based and more than likely NAND-dedicated. Then we have PSC in Taiwan ramping a 300mm fab for NAND production. If I have missed out on anyone of significance, I'm sorry - but does it really matter? The very recent news that Samsung thinks we will have a shortage of NAND rather than over-capacity in the second-half of the year is taken at face value, but NAND capacity is coming on stream in leaps and bounds. Though Samsung and Hynix currently dominate NAND production, they have also switched fabs to producing DRAM when NAND prices dropped 60 percent last year. That may have saved NAND prices from potentially falling so far as to be below manufacturing costs for several quarters. However, there are two other major players now committed to serious capacity additions (Toshiba, IM Flash). Toshiba and SanDisk want to become the Number 1 NAND flash manufacturer and seem determined to achieve that by building and ramping two of the biggest 300mm fabs ever built. The economies of scale of a 210,000wspm NAND-dedicated fab should not be underestimated, and this immense scale is probably part of the psychological battle it wants to play against the likes of Hynix and IM Flash. The obvious aspect for consideration here is that to compete against Toshiba the others will have to match it and at some stage either of these two companies may throw in the towel and make something else. That isn't likely anytime soon, and I think Toshiba knows this. However, Toshiba is also saying to its competitors that NAND demand may continue to grow for many years, but it will be the lower cost producers that make any decent returns. The capital being spent at Fab 4 is returned with low but acceptable margins due the immense scale of the facility. Are the others matching this? No! That's the problem that IM Flash, for example, will have to deal with, but its current size of its fabs is simply average in comparison to Toshiba's two fabs. Hynix has a worse problem in that it only has one 300mm fab and one converted to 300mm. Hynix is desperate to get more NAND and DRAM onto 300mm wafers to stay in the game, but is the weaker in this respect than all its rivals. Samsung, of course, is still in a commanding position with large 300mm fabs and the ability to mix and match. However, Toshiba is now building bigger and possibly better.

To: Pam who wrote (36063)	4/16/2007 11:10:55 AM
From: Sam	Read Replies (1) \| Respond to of 60323

The company stresses that NAND flash production will be most profitable in the second quarter. Samsung expects seeing NAND flash prices to trend up by 20% on quarter in the second quarter, after experiencing a 43% on quarter price decline in the previous quarter. If this is true, and there is a shortage in 2H, then those 60% declines we have been reading about for 07 will not transpire. Could be '05 all over again. Of course, that is a big "if". If the iPhone fails to excite (or if high capacity phones in general don't sell well), if PMPs don't take off, if Vista and PCs don't soak up DRAM supply and, one hopes, keeps pricing at least relatively firm to prevent switching to NAND by other vendors, then all bets are off.